A Time Series Analysis of Representative Agent Models of Consumption and Leisure Choice under Uncertainty.

This paper investigates empirically a model of aggregate consumption and leisure decisions in which utility from goods and leisure is nontime-separable. The nonseparability of p refer-ences accommodates intertemporal substitution or complementarit y of leisure and thereby affects the comovements in aggregate compens ation and hours worked. These cross relations are examined empiricall y using postwar monthly U.S. data on quantities, real wages, and the real return on the one-month treasury bill. The estimated values of t he parameters governing preferences differ significantly from the val ues assumed in several studies of real business models. Several possi ble explanations of these discrepancies are discussed. Copyright 1988, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.